How fears about land expropriation impact current property market

“The concept of land ownership is part of the cultural, social and economic DNA of the future success of South Africa.”

“Which land will be taken without compensation and how will this take place?” are what most people with an interest in property want to know, especially following President Cyril Ramaphosa’s announcement on Tuesday evening 31 July on national television that the ANC will support an amendment to the Constitution to expropriate land without compensation. Calling for better clarity on this matter, property experts reveal the impact the uncertainty is currently having on the property market.

Should property owners panic? No, says Stuart Manning, CEO for the Seeff Property Group. “There is no need to panic. While not distracting from the seriousness of the announcement, it should also be seen in the context of the current political rhetoric in the lead-up to the 2019 General Elections,” he explains.

As explained by political analysts such as Melanie Verwoerd the ANC has been playing catch-up ever since the EFF took the lead with the emotive land ownership issue by tabling the motion for expropriation without compensation in parliament early this year.

However, resolving the land issue is critical. The call for land ownership resonates with thousands of voters especially from poorer communities desperate to improve their living standards. A recent study done by the World Bank found that more than half of our country’s population currently lives below the national poverty line, most of them black or coloured people.

“The concept of land ownership is part of the cultural, social and economic DNA of the future success of South Africa. Land reform is necessary not only to redress the past but, equally importantly, to ensure the future economic growth of the people of South Africa,” says Herschel Jawitz, CEO of Jawitz Properties. He says this is not the first time that the issue of land reform and expropriation has come up and he belies it is no coincidence this time that it is brought up shortly before the next general election in 2019.

The government don’t intend to grab people’s homes or expropriate productive farm land says Verwoerd substantiating her statement with reference to previous statements by Ramaphosa and ANC policy documents. She says their interest lies rather with derelict buildings and vacant land also land obtained illegally. However, neither Ramaphosa nor the ANC have clarified exactly what they intend, or don’t intend, with expropriation of land without compensation and this uncertainty makes property buyers hesitant.

The continued uncertainty about land expropriation and the property market

“The Ramaphoria-effect has waned fast and has disappointingly not had the desired or anticipated effect on the economy and property market. The poor economic outlook and lack of policy clarity around land expropriation has had an unfortunate impact on the property market in the form of increasing buyer hesitancy among those who do not have to buy right now, especially at the upper end of the market where it has been especially pronounced in areas such as the Atlantic Seaboard, both in terms of R20m-plus sales and sales to foreign investors/buyers,” Manning says.

Ian Slot, managing director for Seeff Atlantic Seaboard, Waterfront and City bowl, says while business has continued as usual in the price sector below R8m for sectional title and below R18m for houses/villas, there has over the last six months been a notable decline in sales above R18m for the Atlantic Seaboard (SA’s top luxury market) and the City Bowl. This has resulted in a drop in the overall selling price for the Atlantic Seaboard. They also noticed that rental rates are tapering off from the highs in 2016/17.

Furthermore, Slot says sales to foreign buyers has declined by about 40% compared to two years ago, largely due to concerns about the economy and property rights. At the same time, many foreigners have put their properties on the market.

Broll Auctions and Sales CEO Norman Raad said in a recent statement that the expropriation of land issue is having a major negative impact on buyers and market sentiment, as no one really knows what the outcome is going to be. “The wait for some clarity and certainty is creating anxiety in an already depressed market,” said Raad.

Jawitz believes the key to settling the uncertainty created by the issue is for the government to present a clear set of rules as to how land expropriation will take place and what land will specifically be targeted. Without these guidelines, it is difficult to say which types of land will be targeted.

“Government will be very aware of the dire consequences of a policy that destroys the value of residential land and property, which would occur if private legally occupied land was expropriated in urban areas. The fall-out would extend far beyond land and dwelling value destruction and ripple through the entire economy,” he explains.

Jawitz also says urban buildings, that have been abandoned by their owners and are now being illegally occupied, poses an interesting challenge and opportunity with regard to how these buildings can be better utilised to provide housing.

On the upside, the current property market presents excellent investment options, especially in some upmarket areas of Cape Town. Slot says that now is an excellent time to buy in the luxury areas in and around the Mother City, especially with Cape Town having just again been honoured as a top tourist city in the country by CNN, following a string of accolades from top publications including Conde Nast Traveller.

“If South Africa is your home, then investing in bricks and mortar is the perfect hedge through this difficult and inflationary period. Property has always proven to be a good investment over time, just ensure you have a purpose for the building or land and that it doesn’t remain vacant,” says Raad.

Jawitz says the current market presents the best buying opportunities since 2009.

“Smart investors know that this is the time when one has the potential to make money, as wealth is and can be made in the most difficult periods. Hopefully, the banks will play their part in providing finance and we will enjoy stable interest rates for the next period,” Raad concludes.